China publishes draft rules to improve IPO mechanism

Reuters Staff

3 Min Read

SHANGHAI/BEIJING (Reuters) - The China Securities Regulatory Commission (CSRC) published on Sunday draft rules aimed at increasing the liquidity of newly-listed shares and monitoring pricings for initial public offers in an attempt to curb speculative trading and regain investor confidence.

CSRC plans to scrap the three-month lock-up period for institutional investors in domestic initial public offerings and increase the scrutiny of IPOs that are priced at more than 25 percent above the comparable value of industry peers.

The new rules, which were published on CSRC’s website to solicit public opinion, are aimed at “letting new shares reflect the actual value of companies, fostering balanced and healthy development of both the primary and the secondary markets as well as protecting investors’ interest”.

CSRC’s chairman, Guo Shuqing, has taken a series of measures to improve the mechanism and transparency of a volatile stock market .SSEC that slumped 22 percent last year.

CSRC has cracked down on malpractices such as insider trading and published in February a full list of IPO applicants for the first time in a bid to increase investor scrutiny of companies that aim to go public.

In March China’s two stock exchanges strengthened rules to guard against excessive volatility in newly-listed shares.

Chinese IPOs have traditionally been the focus of market speculation with the prices of many new stock listings showing big swings during their first days of trading, especially on the smaller Shenzhen market, where more small-cap firms are listed.

For example, of the 583 stocks that debuted in Shenzhen between early 2010 and end-February this year, 497 now trade below their initial prices, including 33 that more than doubled on the first day of trading.

The draft rules will also allow underwriters to select five to 10 experienced individual investors to participate in a so-called “off-line” portion of the IPO subscription, which has typically been reserved for institutional investors only.